Need advice on selling a note.

[Marcus Blalock]

I am about to purchase an investment home and I thinking about selling it using owner financing. I am getting a private loan to purchase the property for $58,000 will put $5000 into rehab (it is a foreclosure that is in very good shape; ARV of $90000) and would like to sell it using owner financing.

Here are the terms I will sell the property for:

PP: $90000

5% down payment: $4,500

Loan amount: $85500

Interest: 9.99%

Term: 15 years

Monthly payments/# of payments: $918/180 payments

other scenario:

PP: $90000

10% down payment: $9000

Loan amount: $81000

Interest: 9.99%

Term: 15 years

Monthly payments/# of payments: $870/180 payments

Do I need to include a balloon: loan due in 3 years/5 years, etc?

How do I go about selling the note? 

Do I need to have a license to do so?  

Any and all advice is greatly appreciated. Thanks.

[Les Goss]

@Marcus Blalock, there are several things to consider when selling with owner financing and now most of them relate to the Dodd-Frank bill.

The main thing I would advise is to get an RMLO (residential mortgage loan originator) to qualify your buyer and write up the contract. Even though you aren't required to do this until your fourth deal in a year, they will know all the arcane rules and keep you out of trouble. They will pull credit reports and scores, and make sure the buyer has a good chance of making the deal work. 

After you sell, I would advise hooking up with a loan servicer to handle the hello and goodbye letters, to deal with payments in and out, to collect and set aside escrows, and to pay taxes and insurance. In addition, if your buyer is late, they will send out the approved late notices. Although you can contact the buyer directly after the sale, because of the exactness of the language you have to use ("We are a debt collector and are attempting to collect a debt." etc.) it's probably best to let the pros at the servicing company do that for you.

To make sure that your projected P&I payments are reasonable for your area, check with rentometer.com to see what people are paying for rent for a similar house nearby. I like to make it so that PITI payments will be less than rent. This will be an additional motivator for your buyer because if they lose the house their payments will go up if they have to rent nearby.

Once you have 12 months of payments you can sell the note to an investor. Be ready to sell at a discount off the unpaid balance (UPB). I'd advise against a balloon because many note buyers don't want that in there.